Monday, December 1, 2014

Manufacturing still strong

The ISM November manufacturing index came in close to expectations, and at 58.7, suggests that the manufacturing sector is still quite healthy. As the chart above also suggests, the ISM index points to GDP growth in the fourth quarter of at least as much (3.9%) as we saw in the third quarter. At the very least we can say there are no signs of any slowdown. At best, fourth quarter growth may surprise on the upside, and that would equate to a modest acceleration of growth from the levels (2.3%) we have seen during the current recovery to date.

Meanwhile, markets seem overly obsessed with the possibility that plunging oil prices could tip the Eurozone into deflation and pose problems for oil producing countries that could have negative ripple effects throughout the global economy. Deflation is not a dangerous condition: just ask any consumer how good it feels to have his or her hard-earned dollars buy more. If lower energy prices do create some modest deflation, it will not be the fault of the Fed, it will be the happy result of an abundance of cheap oil. For every oil producer harmed by lower oil prices there are millions of consumers that benefit. The oil and mining sectors have been a real powerhouse driver of U.S. growth in recent years, but it is likely the case that the growth baton will be passed to other sectors in the coming year. What we are living through now is a growth rotation, not the beginnings of another decline.


Joseph Constable said...

Someone said high oil price is a choke chain on the economy. The inflationistas must be furious.

Manufacturing used to be great places to work for those with only a high school degree.

See FRED chart "Employment Level - High School Graduates, no college, 25 years and older. There are several million jobs missing for these people. At least this employment is up almost a million from the low.

William McKibbin said...

Clearly, vast new inventories of military weapons and munitions will be required in preparation for world war as advocated by military-industrial Republicans and big government Democrats. Now is the time to invest in militarism in the US. Old people born before 1955 from both leading parties are almost universally committed to engaging Islam in world war. I am sure Scott is part of that crowd as well. The future looks bright for America -- world war is good for the US economy!

William McKibbin said...

PS: The only "manufacturing" left in the US is either directly or indirectly funded by the military-industrial complex...

William McKibbin said...

PPS: Anyone still counting on manufacturing to lead the US into future prosperity is a de facto advocate for the military-industrial complex -- own it...

Joseph Constable said...

Aerospace is another name for the military industrial complex. You don't have to be a war monger to support the industry.

I agree that the US, ok, Obama/Clinton, intended to destabilize the Middle East and I will never understand why.

Of the complex I like Lockheed best as an investment because they are working on a supersonic commercial airplane and say they have a break through with fusion. I expect to see a fusion powered supersonic airplane someday.

ITA and PPA are ETFs for aerospace.

One can't get much more anti war than me but I do recognize, and have some inside track examples, of how fast China is closing the gap with the US. Russia is superb with their aerospace but has problems that limit them. I have been spending time and money trying to bring awareness to potential Republican presidential candidates of the utter screwy Middle East policy.

Buy on the dips. At least until interest rates rise.

Benjamin Cole said...

Happy to see US manufacturing flourish. I hope the Fed keeps a lid on the dollar.

Everyone likes deflation---in someone else's prices.

Joseph Constable said...

Here is an article to show you just how sick these economists who are all educated at the same cesspool.

Deflationary growth has these people all in a knot. Here is just one quote:

"The reason is the central bank's failure to nudge price growth up to its 2 percent target and, more importantly, signs that investors and consumers are losing faith it can get there any time soon."

That's right. Consumers are losing faith that the FED won't be able to destroy their savings at a rate of 4% every two years and squeeze their income.

These masters of our universe are going to screw things up royally.

Joseph Constable said...

Then there is William Dudley today.

quote: “How much one pushes on the short-term interest rate lever depends, in part, on how financial market conditions respond to such adjustments,” he said in a speech. “All else equal, less responsiveness implies larger interest rate adjustments and vice versa.”

Pray tell, just what response from the financial markets do the masters of our universe want?

What do you think people will think about the masters of our universe if there is another crash? I think they should be losing sleep over that.

William said...

As most of you know, there was persistent deflation in the late 1800s due primarily to the Industrial Revolution and giant leaps in productivity. It turned the US into an exporting giant since Europe couldn't compete with the lower prices of our products.

Matthew Grech said...

Does anybody have a break-out of manufacturing, by industry? (How much is auto, aero, defense, etc.) William McKibbin's comments got me wondering just how much is actually devoted to "defense."